Spend less, invest more, Murray tells government

David Murray at the CIS campaign launch on Wednesday. The CIS wants to shrink the size of government over the next 10 years.
Photo: Sasha Woolley

by
Claire Stewart

A halt to inefficient government spending and new policies for the delivery of public services are crucial if future generations are to avoid being saddled with unser­viceable debt levels and stagnant growth, key business leaders have warned.

Former Future Fund chairman and former Commonwealth Bank boss
David Murray
said the trend for increased consumption- related expenditure and decreased investment-related spending must change.

“I’m a great believer that we operate in one system, that has government and people. And it’s how we get those working in harmony that matters".

He was speaking at the launch of a Centre for Independent Studies campaign to shrink the size of government to under 30 per cent of gross domestic product over the next 10 years, from 35 per cent now.

"The solution lies in decreasing the overall proportion of government spending but increasing investment spending," he said.

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“There are areas the government is better placed to invest than the private sector, normally in the infrastructure sector, where there are positive spillover effects."

However, he said, infrastructure spending must include publicly transparent processes for ranking project standards, based on rigorous cost-benefit analysis.

For government to achieve the right balance between consumption and investment spending, it must confront productivity improvements in the economy generally and in its own activities.

“This has been done elsewhere by facing up to more efficient conduct of health, education and other services in ways we have not been willing to accept."

The CIS report recommends 10 changes that would help keep real annual growth in government spending at about 1.2 per cent, rather than 2 per cent or higher, as has been the case over past decades. The changes would require cuts of about $70 billion a year over the next decade, which could be achieved through lowering debt levels to curb servicing costs, scrapping inefficient benefit and pension schemes and introducing an automatic indexation to tax brackets.

Former ASX chairman
Maurice Newman
said voters and economists must judge a government by its spending, rather than by its revenue policies, in order to properly account for the increasing size of government debt.

“Clearly, what we are now seeing in Europe is the consequence of too much government," Mr Newman said.

“Rather than invoke the wrath of voters by taxing too much, legislators decided to go into debt. Instead of repaying the loans, they continued to borrow, ending up in a debt trap when investors would advance no more".

He warned that unless a stand was taken to curb government spending, Australia would become “yet another moribund democratic socialist state" like Britain, France, Belgium and Italy.

“While the government will claim its $70 billion spending spree was a necessary stimulus to counter the global financial crisis, a more sober assessment will show that billions were spent on pet ideological projects for which there is little to show," he said.

“This misallocation of capital is very costly. To the extent that recurrent spending and waste consumes productive capital, it also limits productivity and future growth," he said.